Capital Budgeting Related Case Solution: Egret Printing

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Capital Budgeting Case Egret Printing &amp; Publishing Company Instructor: Mr. Sabin Bikram Panta Submitted By: Group 3 Shivshankar Yadav (12336) 9/3/2012 Theory and Case Background: The term capital budgeting refers to the process of decision making by which firms evaluate the purchase of major fixed assets, including building, machineries, and equipment. Capital budgeting describes the firm’s formal planning process for the acquisition and investment of capital and results in capital budget that is the firm’s formal plan for the expenditure of money to purchase new fixed asset for expansion or replacement of business. Egret printing and publishing company is a family owned company established by Jhon and Keith in 1956.…show more content…
Ranking of the Projects Rank | PBP | NPV | IRR | | Regular PBP | Disc. PBP@15% | Disc. PBP@21% | 15% | 21% | | I | B(1.48) | B(1.87) | B(2.11) | C(\$621,062.27) | C(\$309,467.18) | B(34.996%) | II | D(2.86) | A(3.54) | A(3.75) | A(\$164,319.52) | B(\$100,551.08) | C(29.947%) | III | C(3.09) | D(4.00) | D(4.82) | B(\$155,828.85) | A(\$70,729.75) | A(26.617%) | IV | A(3.15) | C(4.49) | C(5.53) | D(\$86,627.14) | D(\$12,047.26) | D(22.106%) | Decision based on Payback Given that Erget has only 1.5 million to invest, it cannot select all the projects. Moreover, mutual exclusivity of project A&amp; B do not let to choose both of them. The next constraint is that project C is not feasible when either A or B is not chosen but choosing A or B do not make compulsion to choose project C. Based on regular payback method, if we want a high liquidity and certainty in our cash flow during first few years then project B is better than A. Here project B is best among